Monday, March 23, 2015

Heavy burden weighs on markets

Heavy burden weighs on markets

The grand experiment of central banks to borrow their way to growth may be headed for implosion.

The record expansion in debt across the globe — a stunning $57 trillion since 2007, when the financial crisis erupted — is shattering market confidence and choking prosperity at home as the Fed threatens higher interest rates and Europe engages in its own round of quantitative easing, according to many Wall Street analysts.

“The debts grow larger and larger because of our ability to postpone the consequences — and we are rapidly approaching the crisis that will dwarf the crisis in 2007 and 2008,” said market pundit Peter Schiff, CEO at Euro Pacific Capital.

“The only way we are able to stay ahead is by reducing interest rates and by having the Federal Reserve monetize debt,” he added

And with talk of raising rates at the Fed, the losers are already piling up.

Big institutional investors were licking their wounds earlier this month. Government bond yields plunged to all-time lows in the eurozone — dampening returns — after the European Central Bank began buying government debt and other bonds. It did so in a US-style $60 billion monthly quantitative easing program aimed at inflating Europe’s struggling economies.

The US debt markets are not doing much better. US Treasury yields have trended lower as investors vainly chase them for better returns. Corporate debt markets are also being battered by a rash of bad economic indicators — such as retail sales falling the last three months — showing that the astronomical debt burden has produced little economic growth.

The S&P 500 index posted its largest loss in two months, losing 34.91 points, or 1.7 percent, during the second week of March only to rebound last week when the Fed seemed to push back the date on raising rates.